Global Slowdown Catches Many in Its Net

Market Trends - 26/10/2015

Amid a global slowdown of economic trade, the latest Ifo Business Climate Index out of Germany showed an unsurprising slowdown of activity in the country, with last month’s 108.5 reading declining down to the 108.2 seen in this report. This is a troublesome development given the significance that the Index has on outlook, though it is not exactly unexpected alongside the far-reaching recent events in China and the global environment as a whole. Compounding the potential downsides in the latest data are the decisions from the European Central Bank and China, who have cast shadows on upwards mobility by declining to immediately expand asset purchases and by loosening monetary policy, respectively. Sliding manufacturing orders and industrial production numbers released from the Federal Statistic Office and dissolving foreign trade conditions are in direct contrast by statements from Hans-Wern Sinn, the Ifo President, who expressed optimism in the ability of the business climate to return to health soon.

The recent Volkswagen scandal and the problems in China are not wholly responsible for German economic woes, however. A sticky refugee situation is dragging on short-term budget constraints, and wide pullback in the Euro Area due to the global trade downturn affects Germany as much as any country. As Germany adjusts its fiscal growth estimates down -0.10% to 1.50% for 2015, business leaders and foreign investors are most likely becoming more hesitant to invest resources in an environment that is on such an unstable platform. There is not much that Germany can do at the moment other than trust European Central Bank President Mario Draghi to steer monetary policy in a direction that will not only help the Euro Zone as a whole, but also keep individual constituent countries balanced. This will most likely come about with the installation of asset purchase expansions in the latter part of this year or 2016.


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